The law is pretty clear in most states that the owner of a vehicle can bring a claim for diminished value against an at-fault party, but this becomes a complicated issue for those who are leasing their vehicle. The issue of diminished value on a leased vehicle depends mainly on wording in the lease agreement and/or the policies of the lessor towards how they handle diminished value.
Insurance companies will tell you that you are not eligible for DV on a leased vehicle because you don’t own the vehicle. The owner/lessor is technically entitled to the claim because they are the registered owner of the vehicle; however different lessors handle diminished value differently. I have witnessed lessors occasionally allow the claim proceeds go to the lessee. It’s best to contact the lessor and discuss the issue with them as a wise adjuster will insist on payment to the owner/lessor unless provided with some written directions from the owner stating otherwise.
Usually the claim for diminished value would need to be pursued by the owner of the vehicle. To protect yourself, it is prudent to contact the leasing company and advise them of the situation in order to determine their procedures and give them a reasonable opportunity to pursue a claim now before it’s too late.
Since most insurers assert that the individual leasing a vehicle does not have the ability to assert a diminished value claim, the argument then becomes is it the lessee or the lessor who is actually hurt by the diminished value of the vehicle after an accident?
Some argue that the lessee is harmed for the amount they lose in payments because they are still contractually obligated to pay the same monthly lease payment subsequent to the accident and repair even though the car is now worth less. You keep paying lease payments based on the original retail value of the car, even though the car is now worth less than pre-accident. Keep in mind that the lease you signed is a contract. That contract sets the terms which state you make payments based upon the agreed value of the vehicle at lease signing. Once that contract is executed there is little that can be done to alter it. The vehicle depreciates over time due to mileage or wear and tear. You wouldn’t expect to pay less two years in to the lease because the car is now worth less due to high mileage would you? The same concept applies to a diminished value claim. If the value of the car actually becomes $100 for whatever reason, you still pay the same monthly amount according to your lease.
When the lease ends, you may be charged for the diminished value of the vehicle, so you should get the money from the responsible party/insurance company now right? Some point out that if you return the car damaged, the leasing company will charge you even for dings and scratches, so won’t they charge you for diminished value of the car? You may need to consult your lease for this, but they normally charge for excess wear and tear. Not usually for repaired collision damage.
The at fault driver in the accident, not the lessee or lessor is responsible for the diminished value. Since you were not responsible for the accident, you SHOULD NOT be responsible to the lessor for damages at the end of lease term. However, if you failed to previously notify the lessor, when you return a previously damaged vehicle at lease end, the lessor will probably hold you liable for the amount of the diminished value.
When the lease is up, the leasing company should have already been on notice regarding the collision, and will take that into account with all other damage, mileage overages, etc. in determining what the difference is between the car’s actual market value and previously assessed market value.
IF you allow a body shop to repair your car with aftermarket parts, you may be in for a big surprise at the end of your lease. Before your vehicle is repaired, make sure you have it in writing that all parts will be genuine new OEM parts. Assuming the repair brought the vehicle back to pre-accident condition, you shouldn’t be responsible for any additional charges. However, if the repairs aren’t up to dealer standards, ie non-OEM parts were used, you may be on the hook for that. Most leases are done through the dealerships which have body shops or at least approved shops. It is best to have a leased car repaired at the dealership or those shops since that may help diffuse the argument of substandard work, parts, etc.
You might want to have the owner/lessor evaluate the vehicle after repair and have a post-accident inspection done to make sure the repairs are satisfactory to the lessor. If they say it was poorly repaired, you should go back to the body shop and have this resolved. If they render an opinion that there will be diminished value and they plan to charge you for it at the end of the lease then you have a strong case to pursue a claim yourself.
An additional consideration is that of a lessee who intends to purchase the vehicle at the expiration of the lease term. A reasonable argument is that the lessee is harmed because the price to purchase the vehicle is predetermined and won’t take into account the diminished value resulting from an accident. Under the circumstances, it may be best not to purchase the vehicle at lease end if the lessor tries to hold you to the contract price and not the post-accident value. Many leasing companies are willing to negotiate a decreased buyout price due to the accident history, especially if they previously settled a diminished value claim. As long as you have the vehicle repaired to OEM specs before you turn it in, you may have leverage to buy it at lower than the contractual payoff price.
The bottom line is that if a third party damages your leased vehicle, it is important that you contact the lessor and discuss the issue of diminished value with them directly. I suggest you discuss two main things: Ask them how they handle DV payment and how the accident damage will be handled when you turn the vehicle in at the end of the lease term. Failure to notify and communicate with the lessor will surely result in problems for you down the line.